GoldmanSachs666 Message Board

Fraud*According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain*As defined in Wikipedia

Despite the efforts of some liberal pundits and organizers (and by extension, the Democratic party hackocracy) to lay claim to OccupyWallStreet, the nascent movement is having none of it. Participants are critical of the President’s bank-coddling ways and Obama gave a remarkably bald-face confirmation of their dim views.

As Dave Dayen recounts, Obama was cornered into explaining why his Administration has been soft of bank malfeasance. His defense amounted to “They’re savvy businessmen”: “Banks are in the business of making money, and they find loopholes.”

Is breaking IRS rules a “loophole”? How about making repeated false certifications in SEC filings? Or as Dayen points out, fabricating documents? Or making wrongful foreclosures, aka stealing houses?

The Administration’s strategy for maintaining this posture is by being anti-investigation and anti-transparency. As we’ve discussed, the stress tests were a sham. The foreclosure task force didn’t even try to look serious, it was a mere 8 week investigation and of 2800 cases chosen for review (in no scientific manner), only 100 were foreclosures. The US Trustee’s office found a level of servicing errors more than 10 times that asserted by banks and happily parroted by Federal banking regulators. We expect readers could add to this list just as readily as we can.

There are plenty of grounds for legal action. Contrary to the Obama/Geithner position, this is a target rich environment. And some of the violations were persistent and deliberate enough that they might well raise to the level of being criminal. This is a mere illustrative tally:

1. Violation of REMIC (real estate mortgage conduit) rules, which are IRS provisions which allow mortgage backed securities to be treated as pass-through entities. As we’ve indicated, the violations were clear cut and are easily documented. Moreover, when the senior enforcement officer in the IRS was alerted last year, she was keenly interested. But the word that came back was the the question had gone to the White House, and the answer was to nix going after these violations: “We are not going to use tax as a tool of policy.” So this is not a case of creative use of “loopholes,” this is prima facie evidence of an Administration policy of protecting the banks.

2. Consumer fraud under HAMP. Catherine Masto of Nevada has already delineated this case in her second amended complaint against numerous Bank of America entities (in fact, the evidently clueless President could find a raft of other litigation ideas in her filing). All the servicers engaged in similar egregious conduct.

3. Securities fraud by mortgage trustees and serivcers. While the statute of limitations for securities fraud for the sale of toxic mortgage securities in the runup to the crisis has now passed, securitization trustees and servicers are making false certifications in periodic SEC filings. In layperson terms, the trustee certifies that everything is kosher with the trust assets. As readers well know, in many cases the custodians do not have the notes or they were not conveyed to the trust as stipulated in the pooling and servicing agreement (as in they were not properly endorsed through the chain of title).

Now of course, pursuing this sort of litigation would blow up the mortgage industrial complex. But it represents a powerful weapon to bring unrepentant bankers to heel.

4. Widespread risk management failures as Sarbanes-Oxley violations. As we’ve discussed, Sarbox provides a fairly low risk path to criminal prosecutions. And we believe the SEC has been incorrectly deterred by an adverse ruling in the early stages of its case against Angelo Mozilo. In that case, the judge (with no explanation of his ruling) barred the SEC from claiming SEC violations (which this case did) and double dipping by adding a Sarbox charge (securities fraud statutes parallel Sarbox language; indeed, that was one of the complaints re Sarbox, that many of its provisions were already represented in existing law). That’s far more significant than it appears. As we argued in an earlier post, the language in Section 302 (civil violations) tracks the language in Section 906 (criminal violations). A win on a Section 302 case would thus set up what would appear to be a slam dunk criminal case.

But Sarbox also contains language not present in existing securities statutes that would allow for criminal prosecution for exactly the sort of behavior that caused the crisis, namely, inadequate risk management (we discuss at length in ECONNED how risk management is kept politically weak by design and serves too often as a fig leaf for management). As we noted earlier:

Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years.

The responsible officers must certify that, among other things, they:

(A) are responsible for establishing and maintaining internal controls;(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

These officers must also have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):

(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financialdata and have identified for the issuer’s auditors any material weaknesses in internal controls; and(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls

The premise of this requirement was to give assurance to investors as to (i) the integrity of the company’s financial reports and (ii) there were no big risks that the company was taking that it had not disclosed to investors.

This section puts those signing the certifications, which is at a minimum the CEO and the CFO, on the hook for both the adequacy of internal controls around financial reporting (to be precise) and the accuracy of reporting to public investors about them. Internal controls for a bank with major trading operations would include financial reporting and risk management.

It’s almost certain that you can’t have an adequate system of internal controls if you all of a sudden drop multi-billion dollar loss bombs on investors out of nowhere. Banks are not supposed to gamble with depositors’ and investors’ money like an out-of-luck punter at a racetrack. It’s pretty clear many of the banks who went to the wall or had to be bailed out because they were too big to fail, and I’ll toss AIG in here as well, had no idea they were betting the farm every day with the risks they were taking.

As readers know, it isn’t that there is no case against the major banks, it’s that the Administration is determined not to make it. The fact that New York attorney general Eric Schneiderman, who has been in office less than a year and has only a dozen attorneys on his staff, has filed as many cases as he has on the banking front (and remember, this is one of many beats he is expected to cover) is a stinging repudiation to the Administration. As we’ve indicated, there is evidence of an active press campaign to promote Iowa state AG Tom Miller, the head of whatever is left of the “50 state” attorney general negotiations (and increasingly take down Schneiderman).

This truly embarrassing article from The Daily Beast is the latest example. There isn’t the slightest effort to understand why the failure of the formerly 50 state AGs to investigate means that the idea that there is a possibility of a worthwhile settlement for states and consumers is pure unadulterated horseshit. And so the author imputes bad motives to Schneiderman, when in fact there is a credible case that Miller was trying to curry favor with the Administration (he was fawning over the Treasury’s Michael Barr in Congressional hearings, and it was widely believed he was angling to become the head of the Consumer Financial Protection Bureau).

As much as I disagree with the overall story line of Ron Suskind’s Confidence Men (that the naive Obama was done a dirty by his economics team, in particular Geithner), many of the vignettes are relevant. For instance, the House Subcommittee on Telecommunications and Finance, frustrated with its inability to understand how Wall Street had changed, called imprisoned insider trader Dennis Levine to see if he might be able to shed some light. Representative Ed Markey recounted that Levine had said it had become a game, with the banks engaging in behavior that was “subtly fraudulent.” They used lawyers to help steer a path that would make it hard to prosecute them, and also focused on activities where the returns more than offset the risks.

What did Levine recommend?

You need to send out a slew of indictments, all at once, and on 3 PM on a sunny day, have Federal Marshalls perp-walk three hundred Wall Street executives out of their offices in handcuffs and out on the street, with lots of cameras rolling. Everyone else would say, “If that happened to me, my mother would be ashamed.”

Pretty much everyone who is not part of the problem instinctively knows that needed to happen. Yet Obama and other members of the elite keep trying to placate the protestors by acknowledging that they have legitimate concerns while refusing to take needed corrective steps.

The disproportionate media reaction to what even as of this week are still fairly small scale demonstrations reveals an acute and well warranted sense of vulnerability among the elites. The word “entitlement” has become inadequate to capture the preening self-regard, the obliviousness to the damage that high-flying finance has inflicted on the real economy. There is ample evidence of widespread opposition to the looting of the banking industry, going back to the 99 to 1 opposition in calls to Congress on the TARP (it fell to a mere 4:1 when the industry realized what was happening and mobilized employees to weigh in).

The officialdom has chosen to mistake sullen resignation of citizens in the face of the bailouts and brazen continued looting as complacency. But the ruling classes recognize, too late, that OccupyWallStreet is a spark on perilously dry tinder. Efforts by police to contain the demonstrators keep backfiring, giving them legitimacy, free PR, and eliciting considerable sympathy.

Ironically, the banks and their state backers seem almost hopelessly locked into strategies that will continue to fail. And if they escalate, that action has the potential to be the sort of galvanizing event that they fear most. The nightmare of the elites that may well be visited upon them is one day doors all over the US will open and hordes of the heretofore discenfranchised 99% to walk to their town squares and show by the mere force of turning up united against known enemies that they can and will prevail.

And the comments are worth reading also especially what YankeeFrank Says (paragraphed by me):

Comment 2

I’d like to add something more.

You seem to believe that getting $20 billion or so would do a lot for homeowners. It won’t. In order to fix the mess that has caused 4 million foreclosures so far with 4.5 million more in the pipeline currently, would take HUNDREDS of billions, not 20.

Further, the robosigning is only one of many crimes the banks have committed here. As far as we know right now, aside from control frauds in the origination of mortgages, the packaging of them and selling them as AAA securities, and robosigning, there is also the inconvenient fact that the mortgages were never properly assigned to the trusts, creating horrible chain of title issues and other problems that will linger possibly for decades.

On top of that, the mortgages were never properly filed with the county registers, thereby evading potentially billions in fees to the counties. To be clear, we know of these crimes, but we HAVE NO IDEA how extensive or deep the crimes go, nor if there are other crimes we don’t even know about yet.

Without a full and impartial investigation we will never know and the banks will walk away with another slap on the wrist, while homeowners continue to suffer and lose their homes in the greatest crime in history. Additionally, the release the banks want would give them a pass on many of these crimes, and the quid for that pro quo will merely force the banks to follow EXISTING LAW which they are currently flouting with impunity.

Why will they start to follow the law after the agreement when they aren’t now? You and those you interview are either hugely misinformed or completely disingenuous. The upshot is this “deal” will let the banks off the hook for crimes we barely know the depth of while doing almost nothing to help homeowners in trouble.

2
COMMENTS:

Nocontrol
said...

Moral and intellectual breakdown....

Michael Lewis: The United States is Now a Third-World Nation

Michael Lewis, author of the new book “Boomerang,” says the United States and many European nations suffered a moral failure which lead to economic collapse. Lewis insists that the U.S. economic situation will get much worse before it gets better.

“The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

GS666 #4 on TopSites List

Famous Quotes

The men the American people admire most extravagantly are the greatest liars; the men they detest most violently are those who try to tell them the truth. … H.L. Mencken

An age is called Dark not because the light fails to shine, but because people refuse to see it…James Albert Michener, novelist (1907-1997)

It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe he has prepared himself for the commission of every other crime. … Thomas Paine 1737-1809, Anglo-American Political Theorist, Writer

Laws just or unjust may govern mens actions. Tyrannies may restrain or regulate their words. The machinery of propaganda may pack their minds with falsehood and deny them truth for many generations of time. But the soul of man thus held in trance or frozen in a long night can be awakened by a spark coming from God knows where and in a moment the whole structure of lies and oppression is on trial for its life.: Sir Winston ChurchillWhen governments fear the people, there is liberty. When the people fear the government, there is tyranny. - Thomas Jefferson

When cheaters prosper, we end up with the worst possible system and to call it a free market system is an obscenity. -William BlackWhen the people fear their government, there is tyranny; when the government fears the people, there is liberty." - Thomas JeffersonI believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered. Thomas Jefferson - 1802

Don't be afraid to see what you see.

..................................... Ronald Reagan

When the people and the government fear Banksters like Goldman Sachs and JP Morgan, there is economic dictatorship that will destroy the very fabric of our existence as a civilized society.Mike Morgan

Let me control the money of a nation and I care not who makes its laws.Meyer Amsheil Rothschild

Together We Can Make A Difference!Larry Rubinoff*************Send your "Famous Quotes" to info@goldmansachs666.com